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Is Chapter 7 the option for you?

As a Connecticut resident currently weighing your bankruptcy options, you may have been looking into Chapter 7, as it is one of the most popular choices. It offers many benefits, though there are some drawbacks as well. Today, we will look at both.

According to FindLaw, Chapter 7 bankruptcy is also called liquidation bankruptcy due to the fact that it allows you to liquidate assets in exchange for the erasure of unsecured debts. This can be a great option if you are unable to make a repayment plan, which is necessary for the popular alternative, Chapter 13. For example, if you are currently underpaid, recently got fired, or otherwise do not have enough income to pay off a debt, Chapter 7 may be right for you.

Can you declare bankruptcy for student loans?

Many people in Connecticut go to college with the hope that their investment pays off. unfortunately, you may find that circumstances conspire against you and prevent you from repaying your educational debt. Contrary to popular belief, bankruptcy could be an option in select cases to help you get out from under your student loans.

It is true that, in some cases, federal student loan debt is not eligible for discharge under Chapter 13 or Chapter 7 bankruptcy. However, you should look at your unique circumstances before you determine that you are unable to get relief for your student loans.

Are you eligible to file for Chapter 13 bankruptcy?

Of the many different bankruptcy options available to Connecticut residents, Chapter 13 is one of the most well-known ones. However, not every person may be eligible to file for it.

As FindLaw states, certain things may allow you to qualify for Chapter 13 bankruptcy while others may disqualify you. In order to qualify, you must not be barred by a past bankruptcy. There is a time limit between discharging debts through bankruptcy. If you filed for Chapter 13 before, you must wait two years before filing again. If you filed for Chapter 7, you must wait four years.

How can you avoid foreclosure?

Connecticut residents can fall into debt for numerous reasons. One possible risk is being unable to pay your house off, in which case it will be foreclosed. We at the Law Offices of Charles A. Maglieri will discuss ways you can avoid foreclosure.

There are several ways to avoid foreclosure, but one of the most prominent is through filing for Chapter 13 bankruptcy. This can sometimes be colloquially known as wage earner's bankruptcy. It involves creating a repayment plan that you work together with other parties to create, and is signed off by your lender. 

What do you do if you cannot make mortgage payments?

There are many advantages to purchasing and owning a home in Connecticut, from both a financial and personal point of view. However, owning a home can become burdensome if you have a change in financial circumstances and can no longer afford mortgage payments. 

According to the Consumer Financial Protection Bureau, you have several possible options to avoid foreclosure if this happens. A deed-in-lieu allows you to avoid foreclosure by giving the home back to the lender. A short sale is also an opportunity to dispose of your property and mitigate your loss. 

The story behind Fannie Mae and Freddie Mac

People who have obtained a mortgage in Connecticut, or are actively seeking one, have likely heard the names Fannie Mae and Freddie Mac. They might sound like the names of friendly new neighbors, but in reality, they are government-sponsored agencies who guarantee most of the mortgages in the United States.

To guarantee a loan is to make a promise to assume responsibility for paying a borrower's debt, either in whole or in part, in the event of a default. By providing mortgages, lenders take a significant financial risk. Having Freddie Mac and Fannie Mae guarantee the loans reduces the risk for lenders and makes mortgages more affordable for borrowers. 

How Chapter 13 works

If you are like many people in Connecticut, you automatically assume that in a bankruptcy, some of your assets might be lost. This may happen if you file for a Chapter 7 bankruptcy but there is another type of consumer bankruptcy that may provide greater protection for your home, vehicle and other assets. That is the Chapter 13 bankruptcy.

As explained by the U.S. Courts, debts are not automatically discharged in a Chapter 13 bankruptcy the way they are in a Chapter 7. Instead, debts are essentially consolidated into one monthly payment that you would make to a trustee. The trustee, in turn, distributes payments to various creditors per an agreed-upon plan. This continues over a period of 36 months on the short end to 60 months on the long end. Once the plan is complete, debts are discharged.

What factors affect your credit score?

As a Connecticut resident, you likely find it extremely difficult, if not impossible, to live without credit. Cash has become almost irrelevant in today’s economy, and having good credit is one of the best things you can do for yourself.

But you cannot obtain credit unless you have a good credit score. advises that FICO, the largest U.S. provider of credit scores, uses the following five factors to compile your over all credit score:

  1. Payment history
  2. Credit utilization
  3. Length of credit history
  4. New credit
  5. Credit mix

Will I also inherit my parents’ debt?

In the years before your parents’ death, they may have accrued significant credit card and medical debt. Like other Connecticut residents in the same situation, you may wonder if you are required to continue making payments on the debt your parents left behind.

This can be especially true if you are receiving phone calls and letters from bill collectors asking for payment. They may even state that you are responsible for repaying your parents debt, which is understandably concerning. As NerdWallet explains, heirs do not legally inherit their parents’ debts, but creditors are not without recourse. Before you and the other beneficiaries receive an inheritance, your parents’ assets will be used to repay any outstanding debt. The family home, vehicles and other property may be liquidated for this purpose and distributed to creditors.

Is tax debt discharged in Chapter 7 bankruptcy?

Dealing with the Internal Revenue Service can be a nightmare if you are a Connecticut resident who cannot afford to pay the federal taxes you owe. However, if you try to avoid dealing with the IRS over the taxes owed, it can impose tax liens on your property that are even more burdensome. You may wonder if you are able to discharge your tax debt by filing for Chapter 7 bankruptcy. According to FindLaw, it may be possible to discharge some tax debt through Chapter 7, but only under certain circumstances. 

Particularly, it is in your interest to work proactively with the IRS to avoid a tax lien on your property because even if you succeed in discharging your tax debt through Chapter 7 bankruptcy, the lien will remain. Additionally, some types of tax debt are ineligible for discharge under any circumstance. For example, if you failed to file your taxes at all, you cannot discharge the resulting tax debt with bankruptcy.

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Respected Bankruptcy Attorney

Contact my office to discuss your debt relief needs directly with me as your lawyer. I offer a free initial consultation to all new clients where you can learn more about your legal options and what I can do to help you. I am available during regular business hours and by appointment at other times. You can reach me by phone at 860-242-0574 and 860-952-3674 or via email.

My law firm is a debt relief agency as so designated by Congress in the year 2005. I help people file for bankruptcy relief under Title 11 of the United States Code, known as the Bankruptcy Code.

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